Waste Gobbles Up 25% of US Healthcare Spending

October 8, 2019

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Source: Healthcare Dive

Dive Brief:

  • *The estimated cost of waste in the U.S. healthcare system ranges from $760 billion to $935 billion, or about 25% of the total healthcare spending, according to a report in JAMA issued Monday.
  • *Still, that estimate is down five percentage points from 2011, with prior studies having estimated about 30% of healthcare spending could be considered waste. 
  • *The report focused on six previously identified waste domains: failure of care delivery, failure of care coordination, overtreatment or low-value care, pricing failure, fraud and abuse and administrative complexity.

Dive Insight:

The U.S. spends more on healthcare than any other nation, with spending per person at $10,000, and healthcare costs representing almost 18% of the gross domestic product.

Given those statistics, policymakers are examining how to rein in that spending, including by identifying what could be cut without affecting quality of care.

Since the last time a study was done, published in 2012 and using 2011 spending figures, initiatives aimed at reducing healthcare spend have proliferated, including the rise of accountable care organizations, bundled payments and the move to care for patients in less intensive settings.

The study was based on various literature reviews from peer-reviewed publications and government-based reports, among other sources.

The potential savings from a range of interventions to reduce waste were projected to be from $191 billion to $282 billion, or a 25% reduction in the total cost of waste.

This figure didn’t take into account any efforts to reduce administrative complexity costs, as the authors said they were unable to find any published articles addressing savings from interventions in this waste category.

And there were additional limitations to the study, the authors said.

“Reductions in total cost of care that result from investments in improving chronic disease have been challenging to demonstrate,” they wrote. “Because few sources took the cost of interventions into account when calculating savings, it was not possible to report estimates of the return on investment, i.e., the actual cost-savings that can be expected.”

Former CMS Administrator Donald Berwick, now at the Institute for Healthcare Improvement in Boston, in an accompanying editorial contended that obstacles to change are primarily political.

“Many health services research studies have shown that, under the payment systems currently in charge, some of the very methods for waste reduction that Shrank et al cite would reduce profit for the health care organizations that use them,” he wrote.

Another JAMA editorial penned by former CMS head Mark McClellan and Karen Joynt Maddox of the Washington University School of Medicine acknowledge that many initiatives aimed at cutting waste haven’t been that successful.

“Bundled payments, for example, have demonstrated approximately 4% savings in 90-day episode costs for joint replacement, but no significant savings for the broader group of medical conditions,” they wrote.

The current piecemeal approach, which imposes complexity and additional implementation costs on clinicians, hospitals and health systems, should evolve to a simpler and more holistic approach to value-based payment, they wrote, and primary care should move toward a capitated pay system.

“Specialty care will likely need a combination of a primary care–like chronic disease management track and add-on ‘bundles’ for procedures, with quality measures relevant to specialized care comprising the core of quality measurement,” they said. “Hospital care should be structured within such bundles where feasible, with clear quality measures around safety, and the move of accountable care organizations from fee-for-service–based models to organizations paid on a person level should continue.”


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